Question

A company purchased a weaving machine for $190,000. The machine has a useful life of 8 years and a residual value of $10,000. It is estimated that the machine could produce 750,000 bolts of woven fabric over its useful life. In the first year, 105,000 bolts were produced. In the second year, production increased to 109,000 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year?

Answer 1

Answer:

The amount of depreciation expense that should be recorded for the second year: $26,160

Explanation:

The units-of-production depreciation method is calculated by using the following formula:

Depreciation Expense = [(Cost of asset − Residual Value)/Life in Number of Units] x Number of Units Produced  = Depreciation Expense per unit x Number of Units Produced

In the company,

Depreciation Expense per bolt = ($190,000 - $10,000)/750,000 = $0.24

In the second year, 109,000 bolts were produced,

Depreciation expense for the second year = $0.24 x 109,000 = $26,160